BUSINESS
FOCUS AREA
A Strategic Approach to Employee
Retention
BY JOHN GERING AND JOHN CONNER, PHD, MA
n September 2000, Paul Rutledge,
president, MidAmerica Division of
/ HCA, Nashville, Tennessee, initiated action to become the employer of
choice. Previous tactical programs to
retain employees had proven to be
ineffective. 'Ilirnover rates averaged
30 percent, and the average tenure of
employees who left was about two
years. Across the company, 20 percent of departing employees had
tenure of 90 days, and 70 percent of
departing employees had tenure of
ISSUES AND ACTIONS
A sound retention strategy should
incorporate a business plan, a
value FM'oposition, progress measures, and management influences.
* The business plan will indicate
whether a healthcare organization will achieve a return on
investment for its efforl.
* A value proposition will showcase an organization's
strengths and differentiate it
from its competitors.
* Measuring progress toward
meeting retention goals at regular intervals will help keep an
organization on track.
* The best managers require
accountability, rewarding
employees for their successes
and taking corrective action as
necessary.
* Retention rate targets must be
at a level that will achieve a
competitive advantage in the
served market.
ws^*;
six months or less. The cost to
replace staff continued to rise, and
the number of qualified replacement
candidates continued to decline.
MidAmerica implemented a comprehensive, mission-oriented employee-retention strategy that included a
business plan, a value proposition,
progress measures, and management
influences designed to secure sustainable employee-retention gains.
MidAmerica established a longterm target of meeting the national
healthcare turnover rate, which was
19.2 percent at the time compared
with the division's turnover rate of
30 percent, A year after implementing
the retention strategy, MidAmerica
improved its employee-retention rate
by 42-3 i^ercent and employee-retention cost by 26.7 percent.
The Importance of Retention
Retaining good workers is critical to
the U.S. healthcare industry. literature and best practices indicate that if
employers treat their empioyees as
valued contributors, the employees
will Slay To this end, companies train,
their managers, offer competitive
compensation plans, and increase
benefits to secure their employees"
loyalty Despite these efforts, many
healthcare organizations experience a
shortage of employees and high
turnover rates.
Healthcare organizations expend
considerable effort in marketing their
facilities to patients and physicians.
The same type of effort should be
directed at attracting and retaining
empioyees. Tb attract the best talent.
HEALTHCARE FINANCIAL MANAGEMENT
NOVEMBER 2002
an organization needs to be viewed as
the "best place to work." A high
employee-retention rate implies that
the organization is the employer of
choice.
A retention strategy should specify a quantified prtjblem and measurable objectives. Good managers use a
process approach to solving problems. To achieve worthwhile results,
I'ecruiting and retaining good employees should be treated the same way. A
retention strategy should include a
business plan, a value proposition,
progress measures, and management
influences.
Business Plan
The first step in developing a retention strategy' is to create a business
plan. The purpose of the plan is to
help managers understand the cost
and consequences of employee
turnover, indicate whether a retention
problem exists, and, if so, determine
whether the cost of resolving the
problem outweighs the turnover cost.
Calculating the cost of turnover is
necessary, although difficult to pinpoint, because actual costs are not
shown infinancialreports. Many consulting firms have calculated the cost
of turnover, but to gain agreement
from all the parties involved,
MidAmerica used a conservative formula: 50 percent of the annual salary
and benefits for exempt employees or
35 percent for nonexempt employees. HCA's corporate leadership later
established a cost of 100 percent of
annual salary and benefits as the standard business-plan guide.
BUSINESS
Employee Retention
Many factors contribute to this
cost (eg, contract labor, PRN, and
overtime). These factors inevitably
occur while a position is unfilled.
H*Works determined that 79 |)ercent
of the cost of nursing turnover is productivity-related.^' Ejnployees who are
planning to leave become less productive, and new employees require
time to reach optimum pi-oductivity.
The productivity of other employees
may decline as they spend time training and sei-ving as a resource for the
new team n:iember. Part-time replacement personnel typically are not as
productive as full-time, tenured
employees. In some cases, quality of
work could be affected during the
transition.
Retention costs also include
search-firm fees, training, severance,
sign-on bonuses, recruitment and
intei^view time, and legal costs.
Thefinancialimpact of turnover
on revenues should be evaluated. For
example, if physicians routinely see
the same staff members and have
confidence in their ability, physicians
likely will continue to send patients
to the institution. High turnover, on
the other hand, may lead physicians
to direct patients to competing institutions.
The financial impact cjf turnover
on markel share also should be calculated. For example, if a healthcare
organization has annual revenues of
#300 million and a 30 percent market
share, each market-share point is
worth SIO million. If employee
turnover could cause physicians to
send patients to competing hospitals,
the business plan must reflect the
financial consequences.
After turnover costs have been
determined, tbe financial benefits of
reducing these costs become apparent. Furthermore, reducing high
Niiisc Rt-'criiilJiwnl and Relenlton
, n,t;.: H'Works, 20111).
Fngagemeiit.
employee turnover can improve
patient care. Long-term employees
gain ct)nsiderable experience in
patient care. The longer employees
remain with an organization, the
greater the potential benefit to
patients.
Because employees
want their personal
and practical needs to
be met, employers
need to offer tbe
compensation,
benefits, and
scheduling that
employees desire.
Next, the cost of implementing
a retention strateg\- must be determined. These costs include items
such as compensation, management
development, and marketing
cojnmunications.
Compensation. Competitive
compensation packages are imperative. Employers must know how the
compensation they offer for critical
positions compares with compensation for similar positions at other
organizations in the sei-ved market. It
a healthcare organization is perceived
t(] be a great place to work in terms
t)f such factors as training, resources,
technology, work environment,
staffing, and scheduling, the organization may be able to pay less than its
competitors do (within an acceptable
range).
If competitors are viewed more
favorably as an employer, on the
HEALTHCARE FINANCIAL MANAGEMENT
NOVEMBER 2002
12 Questions to Measure
Employee Satisfaction
1. Do I know what is expected of
me at work?
2. Do I have the materials and
equipment I need to do my work
right?
3. At work, do I have the opportunity to do what I do best every
day?
4. In the last seven days, have I
received recognition or praise for
doing good work?
5. Does my supervisor, or
someone at work, seem to care
about me as a person?
6. Is there someone at work who
encourages my development?
7. At work, do my opinions seem
to count?
8. Does the mission/purpose of
my company make me feel my job
is important?
9. Are my coworkers committed
to doing quality work?
10. Do I have a best friend at
work?
11. In the last six months, has
someone at work talked to me
about my progress?
12. This last year, have I had
opportunities at work to learn and
grow?
Source: Buckingham, Marcus, and Coffman,
Curt, First, Break All ihe Rules: What the
WorW's Greatest Managers Do Differently.
New York, New York: Simon S< Schuster,
1999, p. 28.
Employee Retention
other hand, the organization wiU
need to use compensation as its
leverage. However, any retention
strategy based solely on compensation will not succeed in the long run.
A successful .strategy combines market-rate compensation and a work
environment that is competitively
distinctive.
Managevtent development.
Exit interviews have shown that many
employees harbor negative feelings
about their managers' abilities. Conseciuently, management development
is essential to an effective retention
strategy. Management training not
only should focus on skills such as
coaching, delegating, and communicating, but also should prepare managers to meet and be accountable for
specified standards of performance.
Training costs can be determined by
capturing the c(jst of curriculum and
materials, printing, instructors, facilities, time away from job (and possible
back-up requirements), and travel.
Marketing communications.
Organizations must make their
employees feel valued to earn their
loyalty to the organization. One effective too! for this purpose is marketing
communications, which can be used
to inform employees cjf the organization's vision, direction, and guiding
principles. Effective organizations use
marketing communications to tell
Employees want to
Value Proposition
feel that their
contributions are
important and want
employers to
demonstrate their
commitment to stated
corporate values.
employees whether the organization is
meeting its goals and, if not, what
needs to be done to get back on track.
Marketing communications costs
involve such factors as creation time;
execution elements, such as web site,
print, direct mail, posters, and focus
groups; and recognition efforts.
EXHIBIT 1: RELATIONSHIP BERWEEN JOB SATISFACTION AND A n R I T I O N
Employee
Satisfaction Factors
Employees Planning to
Employees Planning
Stay for More than
to Leave in Less than
Two Years (%)
Two Years (%)
Use of my skills and abilities
Ability of top management
Company has a clear sense
of direction
Advancement opportunities
Opportunity to leam new skills
Coaching and counseling from
one's own supervisor
Pay
Training
83
49
74
41
57
50
66
27
54
51
54
22
38
26
25
36
Soorre: The Hay Group, The RefenEran CWemmo: Wliy fVoductive Worlisr^ leave—Seven Suffiesuons (or Ksejiing Them. Philadeifihis
Pennsylvania, The Hay Group. 2001 (www.haygroup com/online hbraryflBS.html).
HEALTHCARE
FINANCIAL
MANAGEMENT
Once turnover and remedy costs
have been validated, return on investment can be computed for varying
levels of turnover. Conservative shortand long-term goals can be established to measure the effectiveness of
the strategy.
NOVEMBER 2002
A value proposition puts forward
the organization's strengths. It identifies tbe needs that the organi;;ation
can satisfy and how the organization
differs from its competition. To
help pinpoint its unique competitive
characteristics, the organization
can conduct employee focus groups
and/or review exit-interview data
to determine employees' initial
perceived attraction to the organization and whether this perception
proved true.
Exhibit 1 shows results of one
study that demonstrates the relationship between specific satisfaction factors and retention. If needs such as
those shown in Exhibit 1 are met,
employees will want to stay with their
current employer; ifthe needs are
not met, employees will look elsewhere.
To reduce turnover, managers
must show a genuine interest in their
employees' development and success. Employees want to feel that
their contributions are important and
want employers to demonstrate their
commitment to stated corporate values. In addition to their technical
skills, employees want to be appreciated for their work ethic, working
well with customers and coworkers,
and performing high-quality work.
Development programs prepare
employees to perform their jobs satisfactorily and be accountable for their
job performance, Employees need to
be rewarded for their achievements
and provided an opportunity for
advancement.
Employee Retention
The Hay Group reported that
more than half of the employees
sui'veyed said they believe their
companies routinely tolerate poor
performance.^'
The best employees would I'ather
assume more responsibility than
work with those who care little about
the company, customers, and others.
The best employees want to win, and
winners want to work with winners.
HG\ determined through exit
interviews that people joined the
company because they sought good
career opportunities. Ironically, one
ofthe top reasons they left was for
"better career opportunity" along
with manager/supervisor issues,
An effective retention strategy
rests on a combination of factors.
Employees want their personal and
practical needs to be met: personal
needs such as compensation, benefits,
and scheduling; practical needs such
as development, resources, tools, and
technology. They also want to feel valued by the organization. Therefore,
these imperatives become the foundation of the value proposition, as evidenced by the organization's vision,
mission, values, and strategies.
employee retention, productivity, and
profitability^^ Organizations and managers that receive high scores on
c. Bill, kiiigh^m, Mait'us. ;md Coffman, Curt, Firsi.
Hreak Ail Ihe Rules: What Ihe Worlil's GreatesI
Mciiici^i'rx Do Differc'iilly, New Vljrk, New York:
Simon & Sduisier, 1999. p. 28.
these questions predictably perform
very well, while low scores confirm
p(K5r performers.
Other indicators of employee
retention also should be tracked and
reviewed. Indicators of the long-term
success of a healthcare organization's
retention strategy include:
What I
your next health'ca^facility were"^
^ready fully funded?
Progress Measures and
Management Influences
Alter+Care^ Is pleased to
ALTER MEDICAL FUND, a privatel
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Progress toward meeting retention
goals should be measured regularly
One tool for such measurement is
the Gallup Organization's 12 questions to measure employee satisfaction (see sidebar, page 41). After surveying hundreds of thousands of
employees across numerous industries, Gallup has been able to accurately correlate responses to the
questions anti the predictability of
b. The Hay Group, The Reieniioii Dilemma: Wlyy
I'rociuctive Workers Leave—Seven Suf^estionsfor
Keeping Them, Philadelphia, Pennsylrania, The Hay
Gniup, 2001 (www.haygroup.com/onlinejibrary/
development and long-term ownership of^otrtpatlent
facilities. SO HOSPITALS DO NOT HAVE TO COMMIT
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STRATEGIC AMBULATORY HEALTHCARE OBJECTIVES.
Alter+Care® delivers comprehensive healthcare
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AillltfCARE''
HEALTHCARE FIRST
Conlaci John Driscoll. President, jdriscolt@altergroufi.coni or (800) 637-4842
HEALTHCARE FINANCIAL MANAGEMENT
NOVEMBER 2002
BUSINESS
Employee Retention
Low absenteei.sm and tardiness;
Employee investment in the company retirement plan;
Employee volunteerism for community service or special tio-pay projects supportec! by the employer;
Recruitment of friends to work for
the employer;
Management's ability to forecast
turnover; and
Management's commitment to the
retention strategy.
Before you outsource another patient account
you should know about Health Care Financial Services'
emergency physician revenue cycle management
In addition, organizations
can increase retention by using
effective performance management. Performance management
should clearly c<.)mmunicate
expectations and motivate and
develop employees.
Conclusion
Taking a strategic approach to
employee retention, the best
managers:
e are living through one ofthe most challenging periods in the history of Americas
health care system. As a CFO, you know the challenges requiring your medical
center to provide more and hettcr health care for less - and harder to collect — revenue.
M a n ^ n g your revenue cycle is key, as you know. And, if you're like most CFOs,
you're probably spread pretty thinly across all that you need to
accomplish. How do you not leave your hard-earned money on the
table and still minimize compliance risks?
Consider partnering with us - Health Care Financial Services,
a division of Team Health.
We're experts at the revenue cycle management of lai^e volume, small-balance emergency physician bills. Annually, we handle
over 6.5 million of them for our own emergency medicine staffing
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Let us manage die revenue cycle of your emergency medicine physician services. We'll negotiate mana^d care contracts,
improve documentation, educate your physicians, code patient
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rejections, work EOBs, and track down every last cent you have
coming to you - no more, no less.
What else would you expea from a company worthy to be your long-term partner?
You'll come to us because ot our reputation; you'll stay with us because of our results.
• Plan and expect an acceptable
return on investment;
• Provide compelling reasons for
employees to be a part of the
organii;ation;
• Satisfy the personal and practical
needs of employees;
• Demonstrate the value of each
employee;
• Execute management processes
that provide daily engagement
anti advancement for employees;
• Provide focused reward and
recognition; and
• Act on unacceptable performance,
tleaiing equally with technical
and behavioral deficiencies.
Organizations may achieve
short-term success v^'ith quick fixes,
but only a strategic approach will
achieve long-term, sustainable,
marketable success. The goal is a
culture change to sustain and grow
the organization's business. •
Call (800) 443-3672, exren.sion 2368.
John Gering is a partner, Conner & Gering
Associates, Brentwood, Tennessee.
Health Care
Financial Services
John Conner, PhD, MA, is a partner, Conner
& Gering Associates, Brentwood, Tennessee.
A division of Team Health
www.teamhealth.com
Ft- Lauderdale / Knoxvliie / Akron / Tampa / Jacksonville / Livermore
HEALTHCARE FINANCIAL MANAGEMENT
NOVEMBER 2002
Questions or comments regarding this
article may be sent to John Gering at john.
gering@cgaa,biz.